A war time economy and a war time mentality – Opinion by Clint Flores

Last Updated on Thursday, 16 March, 2023 at 10:52 am by Andre Camilleri

Today, I decided to write about the latest references to the war and the financial turmoil unfolding in the USA.

In a recent interview, the Commissioner for internal market, Thierry Breton said that we must shift to a war time economy. Frankly, I thought he was referring to the budget deficits and inflation, that normally an economy experiences during a period of instability, especially if volatility is fuelled by a war. Indeed, I ignored the statement and waited for the following event in Stockholm to see what it will be discussed in the informal defence council.

During the informal Defence Council, the High Representative of the EU, Josep Borrell briefed the media about a proposal that was drafted and put together jointly by the European External Actions Service, as well as the European Defence Agency. The proposal entails three pillars, including the provision of additional ammunition from the current military stocks, the collective purchase of military procurement, and to increase defence capacity building for the defence industry in the EU.

Prior to the commencement of the meeting, one of the journalists asked the High Representative about the war economy reference that was made by Commissioner Breton in the preceding days. Additional questions touched upon the neutrality clause of some of the member states, who are not sending lethal equipment to Ukraine through the European Peace Facility. Like Malta, Austria must respect its neutrality clause inscribed in its Constitution. The High Representative hastily replied that nobody was asking Austria or for all it takes Ireland to abandon their position.

As I explained in my preceding vlogs on my social media page, the High Representative explained that the proposal is perfectly compatible with the current legal architectures of the European Peace Facility to continue aiding Ukraine, both financially and militarily. Indeed, he is completely right. What this mean is that the money contributed by neutral states, supposedly, is not financing lethal equipment, and the neutrality clause is fully respected. The neutral states can constructively abstain in Council when a proposal for military equipment is presented. However, their contribution is still payable, but the funds would go to finance other military aspects, like for instance, uniforms, military boots, and non-lethal equipment.

During the meeting, a new support package was proposed through the European Peace Facility, which will cater for the acceleration of the reimbursement of urgent supply of ammunitions. These are foreseen to come from national stocks that are already in place or pending the order approval, as well as those currently being produced. Truly, the package will see a mobilisation of €1 billion from the European Peace Facility in this area. Additionally, through the European Defence Agency, the EU is proposing to procure military equipment, from NATO-standard or Soviet-standard, 155 millimetres or 152 millimetres. What they proposed in the meeting, was primarily a fast-track procedure to make sure that it is done quicker, and to also optimise costs through joint procurement, to reduce unit costs, and to minimise the delivery time. In this regard, an additional €1 billion will be mobilised for this second track.

On the third track, the High Representative stated that the European defence industry must increase its capacity to ensure that the increase in demand for the armies, is met. In summary, the EU is moving towards ramping up the manufacturing capacities of military and defence stocks, while concurrently reducing production time. Apparently, there are fifteen European firms that have the ability to produce the weaponry that is short in supply. And these European firms are waiting for a guarantee to produce this weaponry.  

However, what irked my eyes was the reference of the High Representative that we – I bet he referred to the EU – are in war times, and in this respect, we must have a war mentality. At that point I literally cringed in my seat. Bafflingly, I had to rewind the news conference. To make matters worse, the High Representative carried on saying that he would prefer to talk about peace, but he cannot because the war in Ukraine is still raging, so unhappily he must talk about ammunitions.

If the Commissioner for the Internal Market and the High Representative of the EU are telling us to shift to a war time economy and to have a war mentality, then they are either hatching something and preparing us for the worse, or else they are shooting from their own hip. Evidently, the EU is not just an ally in this war, but they made the war in Ukraine their own. Hence, we are all directly or indirectly dragged into this war, neutral and non-neutral states.

Simultaneously, on the eve of the informal defence council, the New York Times reported that US intelligence are privy to information that the Nord Stream II attack was probably carried out by a pro-Ukrainian group. Through its High Representative, the EU quickly replied that the reports were premature, and that additional gathering of information was required to draw a conclusion. Indeed, the reaction of the High Representative was quite edgy, especially when asked about it by the press. In fact, I was not convinced by his response; the reference to speculation would mean that US intelligence may be dubious.

Certainly, what one can conclude about US intelligence is surely non-speculation. In most of the times they are quite accurate about the intelligence that they manage to gather through their highly trained personnel and systems. My intuition is telling me that the EU might be anxious about the idea of being left alone, especially if a financial crisis in the USA unfolds. If that happens, the EU will be left exposed, and that would in turn mean, a security threat to Europe.

Indeed, what is even more worrying is the fact that one of the largest banks in the USA collapsed. The announcement of the shutting of the Silicon Valley Bank was made last Friday. On the same day, the President of the EU Commission, was in Washington for a meeting, with President Biden. Mainly, they discussed the Inflation Reduction Act and the EU Green Deal, as well as the access of European markets to benefit from the USA’s policy. Also, it is foreseen that technology would drive innovation in the green sector. However, at the time of the writing of this article, American Banks are collapsing, due to the panic progressing in the market.

Ironically, the Silicon Valley Bank is a provider of credit and finances startups, as well as high-tech companies, and that does not augur well for climate tech research and innovative companies. Indeed, over the weekend, the Fed declared that the bank’s failure posed a big enough risk to the entire banking system. Therefore, the regulators stepped in to guarantee the larger deposits.

Clearly, the Covid-19 pandemic bruised several economies around the globe. Furthermore, the war in Ukraine, and the countereffects of the sanctions left a deeper hollow in public finances, which results are now being unveiled. In a nutshell, we are not prepared for a financial crisis. The global economy is on an abnormal trajectory, and such an undeserved occurrence will only take us back to the events of the 1930s. Hopefully, we will be brave enough to manage it and proactively avoid such a dreadful occurrence.

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